Plan to build rebadged Chery cars in Fiat factory faces hurdles

Sicily plant set to assemble 4 models shipped from China

DR Motor assembles the DR1, based on the Chery M1, in a plant north of Naples.

TURIN – A Fiat factory in Sicily could be used to assemble cars shipped from China for sale in Europe if car dealer Massimo di Risio's plans become a reality. But his goal to sell up to 65,000 units a year of rebadged cars from Chery Automobile faces hurdles.

Di Risio is set to buy a factory in Termini Imerese, Sicily, from Fiat for a token sum of 1 euro.

Helped by large incentives from the Italian and regional governments, his DR Motor Company aims to reopen the factory, which Fiat closed on November 24, to build from completely knocked-down kits about 60,000 units a year of four rebadged Chery models.

Di Risio plans to start production at the factory late next year, initially for the Italian market with exports to other European markets starting in 2013.

A former race car driver, di Risio, 51, opened his first car dealership for the Lancia brand in 1983. His DR Automobiles Groupe now sells 22 brands. In 2009 its revenue was 79.6 million euros and it sold 6,200 new cars.

Di Risio has long had ambitions beyond selling cars. In 2006, he opened a facility to assemble rebadged Chery Tiggos from semi knocked-down kits in Macchia d'Isernia, about 100km north of Naples. He launched the compact SUV under his own "DR" brand in Italy and named it the DR5.

Di Risio says his aim is to capture sales from brands such as Kia, Chevrolet, Hyundai and Nissan and he describes DR Motor as "Italy's second-largest carmaker" after Fiat, but the company has not met its early sales goals and it has financial difficulties.

The initial goal was to sell 12,000 units a year in Italy in the company's first year of operation and expand into other European markets.

But the DR5, which sells from 13,880 euros in Italy, did not win the hearts of Italian buyers in large numbers. Nor did two other models launched later, the DR1, a rebadged Chery M1 minicar, which sells from 7,980 euros and the DR2, a rebadged Chery A1 subcompact whose price starts at 8,980 euros

It took DR Motor five years to reach 12,000 cumulative sales in October of this year. Sales peaked to almost 5,000 units last year, when DR's share reached a quarter of a point of the Italian market. This year, sales are expected to be 3,000.

Fragile finances

Di Risio has struggled to overcome financial and logistics problems. The last financial results publicly available show DR was already in a fragile financial situation two years ago.

At the end of 2009, DR had net assets below 10 million euros but net debts for 34 million euros. In 2009, DR reported 47 million euros in revenues, a 1.6 million euro operating profit and a 35,000 euros symbolic net profit, the first black ink since the company was founded in 2006.

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Former race car driver Di Risio has ambitious car-making plans.

The company said its 2010 financial results were approved on November 3, but did not make them available for this story.

Dealers complain they have customer orders, but product has been arriving at dealerships in an erratic way from April to October. Truck drivers have told dealers there are between 500 to 600 vehicles shipped from China to DR waiting to be cleared in at the Italian port of Livorno.

DR's sales halved to 144 units in October in a total market that dipped 5.5 percent. In the first 10 months, sales fell 26.3 percent to 2,687 units, more than twice the market decline at 10.8 percent.

Earlier this week, unions complained that workers in DR's Macchia d'Isernia plant have not yet received their salaries for September and October.

Di Risio, who declined to be interviewed for this story, downplayed his company's problems. He told an Italian newspaper that a relaunch plan prepared by Ernst & Young management consultants is currently under review by creditor banks and that there is only a short delay in salary payments.

State aid

Di Risio is due to sign a deal in Rome with Fiat and the Italian government on Thursday, December 1 to take over the Termini Imerese plant.

The factory was opened in 1970 to produce the original Fiat 500. Just before it closed, the plant built the Lancia Ypsilon three-door, which has been replaced by a five-door Ypsilon produced in Fiat's plant in Tychy, Poland.

Fiat says it closed the Termini plant because the lack of a supplier infrastructure in Sicily added between 700 euros to 1,000 euros in logistics costs per unit built there compared to Fiat's mainland Italian plants.

DR plans to assemble in Termini about 60,000 units a year in Termini. Its plant in Macchia would continue making about 5,000 to 6,000 units a year of the DR1 minicar.

Di Risio counts on hefty incentives to take over the Termini plant from January 1 and retain 1,000 jobs in an economically poor part of Italy. He plans to invest 125 million euros including 110 million euros for r&d and tooling and another 15 million euros to retrain workers.

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The DR3 will be built in Sicily.

Italian press reports stated that Invitalia, a State-owned agency to promote investments in Italy, will award DR Motor a grant of 27 million euros for the project.

The Sicilian regional government will grant 45 million euros to help pay workers waiting to be retrained and re-hired. DR would also have access to 95 million in guaranteed bank loans.

The DR3, a rebadged Chery Fulwin 2 subcompact, is scheduled to be the first model built in Termini, beginning in the second half of next year at the earliest. It will sell for below 11,000 euros.

Other cars scheduled to be assembled at the plant are a new version of the DR5, the DR2 and the DR3 subcompacts and the DR4 compact.

Di Risio's plans have met with skepticism among industry watchers. Giorgio Elefante, head of automotive advisory services at PriceWaterhouseCoopers, said DR Motor might find it difficult to make money building cars in Termini -- "something Fiat said it was unachievable when it decided to close the plant," he said.